Magazine Article | July 31, 2014

ONO Pharmaceutical Strives For Global Sales

Gyo Sagara, president, representative director and CEO, challenges his company to enter the cancer field and gain big-pharma relevance.

As the train pulls into Shimamoto Station between Osaka and Kyoto, the Minase Research Center appears like a white castle within the dark green of the rolling hills that cover much of Japan. In the summer, those unaccustomed to the humidity of the Kansai region overheat as they walk from the reception gate up the winding road to the main entrance. Along the way, small rectangular signs have been placed in front of trees planted to commemorate the launch of new drugs. Just before the entrance to the center sits a large stone carved with the words, “Dedicated to Man's Fight against Disease and Pain.”

Most everything about Ono Pharmaceutical Co., Ltd., is quintessential Japan. That includes the determination of its trim, youthful, 56-yearold leader to make his the next Japanese company of global reckoning. And he believes he has the cancer immunotherapy drug to get him there.

I had the opportunity to talk to Gyo Sagara, president, representative director and CEO, on a day spared the normal downpours of the early summer rainy season. Our discussion was in Japanese (Osaka dialect, to be precise) and translated into English for this article.

Sagara knows what he wants to talk about. “For the first time in our history,” he says, “Ono will launch a cancer immunotherapy agent, Nivolumab. This is an antibody-based drug with a new mechanism of action that will have a major impact on patients, further research around the world, and Ono itself. We believe Nivolumab will have efficacy in several cancers, including malignant melanoma, non-small-cell lung cancer, and renal cell carcinoma. For the first time in the world there is a drug targeting the PD-1 [programmed death-1] pathway. We are determined to develop a new class of drugs based on Nivolumab. This will bring Ono international recognition and transform us into a true global pharmaceutical company."

Nivolumab was designated as an orphan drug indicated for malignant melanoma by Japan’s Ministry of Health, Labour and Welfare on June 17, 2013. In December 2013, Ono officially filed an application to obtain “manufacturing and marketing approval for human IgG4 PD-1 immune checkpoint inhibitor Nivolumab.” Sagara is optimistic approval is coming. “Maybe by the time this article comes out,” he adds hopefully. (Editor’s Note: Sagara and Ono got their wish: On July 4, 2014 Ono announced it had received manufacturing and marketing approval from Japan’s Ministry of Health, Labour and Welfare [MHLW] “for the human anti-human PD-1 monoclonal antibody 'OPDIVO Intravenous Infusion 20 mg/100 mg' [OPDIVO] for the treatment of unresectable melanoma.” OPDIVO is Nivolumab’s product name for the global market.)

For Sagara, the story of Nivolumab reveals the type of company Ono is and what it wants to become on a much grander scale. The antibody work originated in the laboratories of Kyoto University, led by Professor Tasuku Honjo. In 2000, Ono selected Medarex, Inc., a biopharma company in the U.S. and a specialist in the field, as a partner to develop a drug. Ono out-licensed the U.S. market to Medarex, maintaining rest-of-world rights. In 2009, Bristol-Myers Squibb (BMS) obtained Medarex, and subsequently, in 2011, Ono granted the much bigger and more experienced BMS exclusive rights to develop and commercialize Nivolumab in rest-of-world outside of Japan, Korea, and Taiwan — Asian markets Ono has prowess in.

Ono is already being rewarded for its faith in BMS. In 2013, the FDA granted "Fast Track designation" for Nivolumab in non-small-cell lung cancer, melanoma, and renal cell cancer. Then in May of this year, the FDA further granted Nivolumab "breakthrough therapy designation" for the treatment of patients with Hodgkin's lymphoma after the failure of autologous stem cell transplant and Brentuximab. On June 24th, BMS announced that a randomized blinded comparative Phase 3 study evaluating Nivolumab versus Dacarbazine in patients with previously untreated BRAF wild-type advanced melanoma was stopped early because an analysis showed evidence of superior overall survival in patients receiving Nivolumab compared to the control group. Patients in the trial, named CheckMate-066, will be allowed to cross over to Nivolumab.

According to Michael Giordano, MD, head of oncology development for BMS, “The outcome of CheckMate-066 is an important milestone in the field of immuno-oncology, as it represents the first well-controlled, randomized Phase 3 trial of an investigational PD-1 checkpoint inhibitor to demonstrate an overall survival benefit.”

At Ono, Sagara ensures the value in leveraging this type of partnership is fully recognized. “I tell our employees that, like each step in the discovery, development, and commercialization of this new drug, they should always seek partnerships with the best scientists and companies in the world,” he says. “This should work hand-in-hand with our own internal research and development. We’ll benefit from combinations of internal and external expertise in all scientific and business areas,” Sagara says.

Emerging From The Void
Sagara is focused on the future, but he uses the lessons of the past as fuel to get there. He often reminds his employees that once before Ono gambled on a new scientific field of study to propel the company forward.

“Out of the poverty of post-war Japan came the seeds of great innovations and world-renown companies, such as Matsushita, Toyota, and SONY,” says Sagara. “Ono was there as well. We put the survival of the company on the line, and in doing so we were in danger for a few years, focusing all our resources on the prostaglandins (PG) field. Outside of Ono and Upjohn, this was a field that no one else was pursuing. However, we fully embraced the challenge, and in 1968 we were the first in the world to synthesize prostaglandins. Although nowadays our situation is much more secure and stable, I want our employees to again embrace that same confidence and spirit.”

It is not unusual, then, for Sagara to have Konosuke Matsushita, founder of Matsushita Electric Industrial Company, as one of his role models. In 1917, Matsushita started what remains today one of the largest commercial electronics companies in the world, now known globally as Panasonic. Sagara says it is very common to have Matsushita as a role model, “However, his management philosophy speaks directly to me in my daily activities. He believed that there is no value in establishing businesses unless the undertaking contributes to society at large. His most important teaching is to treat all things with an open heart. Look clearly at the essence of what is in front of you without prejudice. Make the correct decisions and judgments based on this openness.”

2017: Ono’s Past And Present Meet Its Future
Each day, the year 2017 drives Gyo Sagara. It represents the 300th anniversary of the founding of Ono and also its 70th anniversary as a corporation. Sagara wants to have realized the pharmaceutical company of his dreams by then. He focuses on this historic juncture ... but only to a point.

"We are devoting resources to more aggressively take our com pounds into Asia."

Gyo Sagara, President, Representative Director and CEO

“We are approaching 300 years of history, and like all CEOs I always think about our employees and their families, patients, and shareholders, but I’m careful not to do all this to the point of becoming too nervous!” he jokes, using an idiom often heard in Osaka. “I do feel responsible because we are approaching this particular milestone,” Sagara continues. “Our real mission is to complete 300 years of history by establishing a bright future, filled with global aspirations and large ambitions. This is the focus.”

A Need For More Speed
Sagara has provided us an overview of Ono’s past and future aspirations, so let’s discuss the here-and-now. Ono’s top-line sales number has hovered near $1.5 billion (U.S.) for the past five years, increasing 6.8% from 2009 to $1.4 billion during the 2013 fiscal year (ending March 31, 2014). Net income has also remained relatively steady over the five-year period, coming in at $199.5 million in fiscal year 2013. The employee base has also stayed constant at just over 2,800 in 2013. Ono has a variety of commercial products on the market; the pipeline appears to be strong with a list of over 40 drugs in phase study in its 2013 annual report. It has focused discovery efforts on what could be global, high-value areas such as bioactive lipids, enzyme inhibitors, and membrane transporter regulators. And of course the newer focus on oncology, the first result of which is Nivolumab.

One thing is clear: With the bulk of Ono’s sales — 98 percent — still derived from the domestic market, Sagara has his work cut out for him to gain a global share of drug sales.

Ono has forged international relationships to help grow overseas sales of its commercial products. For example, along with a strong relationship with BMS, Ono has codevelopment or licensing agreements with AstraZeneca, Merck Serono, Novartis, and Japan’s Astellas. The company is open to working with CROs and CMOs around the world. It has announced discovery alliances with a variety of international partners such as BioFocus (U.K.), Domain Therapeutics S.A. (France), Receptos Inc. (U.S.), and Evotec (Germany). When asked how Ono selects its partners, Sagara replies, “We select these companies and relationships based on the specific science or technology necessary for a project, no matter where that may be, so the basic criteria differ in each case.”

Sagara leans forward for emphasis. “At this point we are still a small company, and people from the outside may look at us as a bioventure,” he says, choosing the term the Japanese use for small or specialty pharma, “but now we have a big agenda.”

He continues, “We are devoting resources to more aggressively take our compounds into Asia, which has been an initial focus for us, and then the European and U.S. markets.

"Recently, we established a Translational Medicine Center (TMC) and new CMC Research Center (CRC). We have established a new office in Korea, OPKR, and in fact I will let you know we are reorganizing our presence in the U.S. at this moment, something not yet fully announced.

“Speed is holding us back,” he suddenly interjects. “To compete globally, we need to speed up our activities, including planning and implementing of clinical trials, our approach to marketing and sales, and even in our labs and production facilities.”

Since Japanese companies are not known for a management style that promotes quick decision-making, I asked if his plan to speed up included board decisions and executive management. “Yes, we need to organize our company hierarchy and speed up all activities,” answers Sagara. “We need to make quicker decisions regarding scientific collaborations, for one thing. When we identify specialists around the world, we should reach out to them immediately. For example, we have hired a number of scientists from abroad as special consultants, including such well-known scientists as Dr. George Hartman, former executive director at Merck & Co.”

Sagara continues, “We also need to adapt new technologies from around the world more quickly. We have a special team, Discovery Research Alliance (DRA), with members located here in Japan, the U.S. and the U.K., who are tasked with searching globally for specialists and leading technologies. We are taking on all these activities and moving in the right direction.” Sagara says, "But if you ask me if there is one concern I have: It is that we still need more progress on what I call ‘accelerating to the speed of global competition.’”

It might be expected that Sagara is all about moving fast; his ascension to his current role was born of speed. He started at Ono in 1983 and worked his way through the organization by holding leadership positions in operations and business and sales but then was suddenly named to replace Daikichi Fukushima, after Fukushima served as president and CEO for only two months. At the time (2008), Ono said the move would allow Fukushima to take on the newly created role of head of global research strategy to focus on Ono’s R&D pipeline. The Nivolumab project actually originated in a research group headed by Fukushima, and according to Sagara, this re-organization is emblematic of a more agile company, both in the decision-making process and the resulting new organization.

The Fire Of A Challenger
Throughout our conversation, Sagara used the word risk only as it related to his concern for “mega-pharma’s mega-merger” syndrome and to the potential for a decrease in new drug output as a result (see inset). When discussing the future of his company, his philosophy, and Ono’s employees, he intoned “challenge” and “challengers” repeatedly.

“What I want most to continue at my company is the understanding that employees must be challengers,” he says. “They must challenge themselves and our company. Some 50 years ago we challenged the field of prostaglandins and produced first-in-class medicines. We bet the survival of our company on this, but we put everything we had into it and succeeded.” He adds that Ono has adopted a company-wide slogan whose Japanese characters perhaps best translate to, “We are passionate challengers.”

As the interview with Gyo Sagara comes to an end, I can’t help thinking that although he loves golf (Sagara jokes he has gotten progressively worse over 30 years, so looks forward to training for another 20), his demeanor is more of the calm but resolute warrior-leaders of Japanese tradition. His personal challenge and the path to succeed are clearly set before him. He accepts them fully. He leaves one believing there is indeed little “risk” Ono Pharmaceutical will not succeed in becoming the global player of its leader’s aspirations. And if Ono’s entrée into the cancer field goes as planned, it will have happened in time for 2017.

Japan Pharma and the Nikkei

Ono Pharmaceutical and 16 other pharma companies in Japan belong to the Nikkei stock index. Next to the Dow Jones Industrial Average (DJIA) and the S&P 500, Japan’s Nikkei 225 and its less exclusive partner the Nikkei 500 — both referred to as the Nikkei — are two of the most cited indexes in the world. The Nikkei is important because it tracks stocks in the third-largest economy and the second-largest pharmaceuticals market in the world, and also because of its advantageous time zone, which provides global investors a first look at how Asian investors are reacting to global news.

It seems a bit odd, then, that in our industry the pharmaceutical sector of the Nikkei receives such little attention and analysis. Nonetheless, it is a key barometer of the state of Japan’s pharma industry. Pharmaceutical companies in the elite 225 are (Nikkei listing precedes the name):

All in all, these are quite impressive lists. Japanese companies may talk less to investors than their counterparts globally, but companies with steady earnings (and strong sales and pipelines) might be worth a look. For example, Ono’s stock is up 27% for the last 12 months and has a total return over the period of ~36% when its dividend is included.

Big Pharma: The Logic of Numbers And Scale

Not only does Gyo Sagara want to lead Ono Pharmaceutical into the club of “global pharma” (and if you are reading this for the first time, you have not been paying attention), but he also has thoughts regarding some of the current membership.

“Every company has to make its own business decisions,” he starts carefully enough, “but I am concerned with the mega-pharma mega-merger syndrome.” While Sagara says that nothing is for certain, “If this does continue, it will look like Big Pharma vs. fewer and fewer smaller companies, in a competition. They say 70 percent of drugs are not discovered by Big Pharma but by biotechs, bioventures, and universities. Therefore, this may not be the best way to move forward.”

Sagara continues: “The logic of numbers and the logic of scale are gaining more and more influence over decision-making. Marketing and sales for certain employ the logic of numbers and scale, but now also clinical development and trials are based on this type of calculation. However, drug discovery – medicinal chemistry and other aspects – can’t necessarily deliver reliable results based on this thinking.

“New drug discovery and development are at a reduced point,” continues Sagara. “People in developed countries have longer life spans; populations in developing countries are increasing. Are more mergers really good for patients waiting for drugs, and for the industry itself? I am concerned we would somehow risk taking a step backward.”

The Human Reaction

Ono Pharmaceutical Co., Ltd., has been an active participant in global outsourcing across the drug discovery, development, and manufacturing continuum. I had the opportunity to work with the company for a number of years when I led business development in Japan for a U.S.-based CRO/CMO with international locations. In its pursuit of the best scientific expertise and strategic options applied to the stage and type of program it was outsourcing, Ono was very open to utilizing new facilities and locations. In fact, on some projects during our relationship, we had scientific teams working simultaneously at facilities in New York and Washington in the U.S., and Hungary and Singapore abroad.

Outside of the scientific and strategic considerations for a new location, Ono insisted on one other inviolable prerequisite: All facilities must participate “face-to-face” in combined video conferences. Unfortunately, as we added locations, my company started to realize that our conferencing equipment was inadequate. Since Ono was running projects from multiple sites in Japan, its equipment also became lacking in capacity.

The solution? Ono purchased a new video-conferencing system compatible with and able to bring together simultaneously all the sites at both parties working on the common project. In effect, the sponsor assisted the provider in meeting the sponsor’s needs. This is surely an early example of the more mutual and deeper sponsor-provider relationships we hear so much talk about nowadays.

At that time, our main conduit for the Ono relationship, Takuya Seko (who is currently heading the newly formed CMC group), explained the strong stance on video conferencing: “Ono’s executive management believes it is as important to see the human reaction as it is the chemical or biological reaction.” Now, years later, having met Ono’s new CEO, Gyo Sagara, it is clear that tenet starts at the top and still stands.